Dive Brief:
- La-Z-Boy is working to cut down "unprecedented" lead times of five to nine months by increasing production capacity "as quickly as possible," CEO Kurt Darrow said on an earnings call this month.
- The company said it is communicating with partners in Asia and in the U.S. to address supply disruptions. It also opened a new manufacturing facility in Mexico that started production in December, which it anticipates will ramp up inventory over the first half of the year, and temporarily reopened portions of its Newton, Mississippi, assembly plant last year. Weekend and third-shift production lines that were started last year continued operation at all the retailer's U.S. plants throughout Q3 2020.
- Still, standing up additional operations hasn't reduced the number of delays needed to get back on track with product delivery times. "The amount of demand we're getting, even though we're producing more furniture every month, is keeping the backlog out a lot farther than we'd like," Darrow said.
Dive Insight:
Plant closures early in the pandemic, raw material disruptions and elevated freight costs are all challenges La-Z-Boy is trying to overcome. And though the manufacturer is at max production capacity, and aiming to address its backlog, any additional disruption can be a setback to its efforts.
With the winter storm halting supply chains across much of the nation last week, La-Z-Boy saw just how precarious another disruption can be to production. And every minute a production line is not up is another obstacle the company has to navigate to fulfill orders.
"If you lose a couple of days because of ice and snow all over the majority of the United States ... you can't just run an extra Saturday or run an evening shift to make that up in near term, because those extra shifts were already planned to continue to work against the existing backlog," said CFO Melinda Whittington, set to become the company's CEO in April.
While the company increases capacity, it continues to experience significant order backlogs, creating a "long tail in terms of production and deliveries," Whittington said.
Jim O'Dea, vice president of Global Operations at Workhuman, said while consumers may have been forgiving of a slower supply chain at the beginning of the pandemic, that understanding only lasted a month or so. After that, they wanted to see supply chains return to normal.
"If we saw product that had extending lead times, we could work with distributors or direct manufacturers to get a good sense" of when the product would arrive to a retail warehouse and be able to fulfill a consumer order, O'Dea said. If not, the retailer could turn its attention to SKUs with shorter lead times.
But for furniture manufacturers, with bulk items and the tendency to single source, this strategy doesn't always make sense, he said. The strategy instead has to rely heavily on working with partners to increase production as much as possible.
With rising material costs and a foam shortage that slowed production last year, some manufacturers raised their end prices. And as more price increases and shortages were reported to start 2021, product prices may lift even higher. La-Z-Boy previously raised some prices for written orders in 2020, and said it will explore the option to raise prices again in the future.
Labor-availability and transportation issues have also had an impact on increasing production and improving delivery times to desired levels across the industry, the ISM Supplier Deliveries Index for December found.
La-Z-Boy's goal for now is focusing on making moderate, sequential improvements in capacity throughout the first part of 2021, Whittington said.
